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US slaps insider trading charges on Rajat Gupta

News18

Updated: March 3, 2011, 7:38 AM IST
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US slaps insider trading charges on Rajat Gupta
The Indian American rubbished charges of insider trading against him as "baseless".

Washington: The US markets regulator has charged Indian-American Rajat K Gupta, a former board member of Goldman Sachs and Proctor and Gamble, with insider trading, accusing him of providing confidential information to the key
figure in a major hedge fund probe.

The Security and Exchange Commission (SEC) accused Gupta (62) of illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending USD 5 billion investment by Berkshire Hathaway in Goldman.

The insider trading by Rajaratnam and others generated more than USD 18 million in illicit profits and loss avoidance, it said.

Gupta, a Harvard Business School graduate, however rubbished charges of insider trading against him as "baseless" with his lawyer asserting that his conduct and integrity were "beyond reproach".

SEC alleged that Gupta, a friend and business associate of Sri Lankan-born Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards.

Rajaratnam used the inside information to trade on behalf of some of Galleon's hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms, it said.

Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam, SEC said.

"Gupta was honoured with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets," said Robert Khuzami, Director of the SEC's Division of Enforcement.

"Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions," he said.

SEC alleges that while a member of Goldman's Board of Directors, Gupta tipped Rajaratnam about Berkshire Hathaway's USD 5 billion investment in Goldman and Goldman's upcoming public equity offering before that information was publicly announced on September 23, 2008.

Gupta called Rajaratnam immediately after a special telephonic meeting at which Goldman's Board considered and approved Berkshire's investment in Goldman Sachs and the public equity offering, it alleged.

Within a minute after the Gupta-Rajaratnam call and just minutes before the close of the markets, Rajaratnam arranged for Galleon funds to purchase more than 175,000 Goldman shares, it said.

Rajaratnam later informed another participant in the scheme that he received the tip on which he traded only minutes before the market close, it alleged.

"The SEC's allegations are totally baseless," Gary Naftalis, Counsel for Gupta, said in a statement to PTI.

First Published: March 3, 2011, 7:38 AM IST
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